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Housing is all over the place

The housing market is a difficult industry to evaluate accurately. So many variables can affect housing activity, with price and inventory topping the list. These two factors have been constraining any real improvement in this sector for months. Prices continue to rise as the inventory of available and affordable housing continues to decline. The median price of a previously owned home rose 5.7 percent from a year ago. First time homebuyers accounted for 30 percent of purchases in March, compared to the historical norm of 40 percent. The higher prices are making it difficult for would-be new homeowners to move from renting to owning. They are also making it difficult for current homeowners to "move up," thereby depleting the inventory of starter homes even more.

The difference in activity between new and existing homes also contributes to the volatility in the housing sector. This week’s data is a clear example of the differences between the new and existing home sectors. Housing starts and permits to build homes fell dramatically in March. Construction on new homes declined 8.8 percent, while permits declined 7.7 percent. Builders continue to cite a lack of land and skilled workers for new home construction. The silver lining is a decline in multi-family housing activity, which should make room for desperately-needed single-family homes. Permits for multi-family housing fell 20 percent, with only a 1.20 percent decline in single-family housing permits.

On the other end of the housing spectrum is the existing home sector. Sales of previously owned homes rose 5.1 percent. This was a reversal of a 7.31 percent decline in February. Single-family home sales rose 5.5 percent, while multi-family housing was up only 1.8 percent. Even with the stronger pace of sales, an increase in listings drove the supply of homes up to 4.5 months, still below the 2015 average of 4.8 months. Sales were strong across the country.

Other Key Indicators this Week:

Leading Indicators – The index of U.S. leading economic indicators rose 0.2 percent in March. The index measures the economic outlook for the next three to six months using a variety of indices. The smaller-than-expected increase was restrained in large part by the significant drop in building permits. The index for February was revised from up 0.1 percent to down 0.1 percent. The index has been negative two out of the past three months.

The Markets – The equity and commodity markets reached noteworthy thresholds this week. The Dow Jones Average broke through 18000 for the first time since July 2015. Stock strategists view this as a sign that investors are feeling more confident in the economic outlook. The concerns over global economic weakness that brought stock prices down earlier this year seem to have abated. At the same time, the price of oil is above $44 a barrel for the first time since December and has managed to stay above $40 a barrel for two weeks. The higher prices in stocks and commodities eventually caused bond prices to fall and yields to rise. By the end of the week, the yield curve widened to 106 basis points as the 10-year note rose 13 basis points.

Strategically for Credit Unions:

Despite the small increase in Treasury yields this week, interest rates remain historically low. The Federal Reserve meets next week to discuss the economy and the direction of interest rates, but no one is holding their breath for a change. The last comments from Federal Reserve Chairman Janet Yellen made it clear that the Fed is not in a rush to move rates higher.

Sarina Freedland – Senior Investment Officer


Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.

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